FIVE DAYS; Sales Are Up, and So Are Energy Prices

By Mark A. Stein

Published: June 3, 2006

CONSUMERS were willing to open their wallets last month, but seem reluctant to do so in the near future. Energy companies, meanwhile, are eager to spend money and are likely to spend a lot more soon. These developments have something in common: energy prices. Gasoline near $3 a gallon and the prospect of high summer air-conditioning bills are spooking many consumers but are exciting energy executives looking to use their cash hoards to buy out rivals.

Seeking to calm the financial markets, which were rattled by these changes and persistent signs of inflation, President Bush nominated a new Treasury secretary with ample credibility on Wall Street and Capital Hill.

A NEW CAPTAIN -- With the dollar falling and the trade deficit rising, and with tax cuts bumping up against a sizable federal budget deficit, President Bush named Henry M. Paulson Jr., a Wall Street banker, to succeed John W. Snow as Treasury secretary.

Republicans had long been pushing for a change at Treasury, arguing that Mr. Snow had failed to convince the public that the economy was flourishing. Mr. Paulson, who is chairman of the investment bank Goldman Sachs, is an experienced salesman, and he may be able to use his international experience to persuade China to narrow its trade gap with America.

Mr. Paulson was a vocal public supporter of the Bush administration's tax cuts, and the president said Mr. Paulson's job would be ''to maintain a pro-growth low-tax environment'' and to work with Congress to restrain spending.

Mr. Paulson is not expected to face significant opposition at his confirmation hearings.

RINGING REGISTERS -- Retailers posted robust sales in May, led by midmarket chains like J. C. Penney, where sales at stores open at least a year rose 11.1 percent over May 2005. Federated Department Stores, which owns Macy's, said sales rose 9.2 percent.

Wal-Mart, the nation's biggest retailer, said sales rose 2.3 percent in the month, less than the 2.9 percent analysts had predicted. Target sales climbed 5.7 percent, beating expectations of a 4.8 percent gain.

The worst sales news came from domestic carmakers. General Motors was hit particularly hard: its sales tumbled 15.7 percent over last May. The Chrysler division of DaimlerChrysler said its sales dropped 14 percent. Ford said its sales slipped 1.9 percent.

To cope with flagging sales, G.M. said it would cut vehicle production in North America by 8.4 percent in the third quarter.

BUT WAIT -- Even as consumers filled stores and malls last month, they were increasingly pessimistic about the economy, which may cause them to scale back buying later in the year, economists said.

The Conference Board said its consumer confidence index fell in May, after two months of gains. A survey sent to 5,000 homes found shoppers only slightly less optimistic about the economy now, but it noted a sharper decline in expectations about the economy over the next six months.

Uncertainty about job security and concern about energy prices are the primary reasons for the pessimism, economists said. That analysis was supported by employment numbers, which showed anemic job creation last month.

An AP-Ipsos telephone poll of 1,000 adults, meanwhile, found that 70 percent of Americans expect high gasoline prices to cause financial hardship over the next six months. A year ago, only 51 percent of those surveyed said that.

The Institute for Supply Management released a survey saying that manufacturing output declined in May, extending a four-month slide that reflects weaker orders. At the same time, one survey of factory prices posted its largest rise in eight months, reflecting rising costs for oil and other raw materials. Residential construction also slumped in May.

Conflicting data is clouding forecasts of whether Federal Reserve policy makers will raise interest rates again at their next two-day meeting, which begins June 28.

ENERGY FRENZY -- Forecasts are clear and upbeat in one area: energy mergers. That was affirmed when a group of investors offered to buy Kinder Morgan, a pipeline company, for $22 billion.

Kinder Morgan operates about 43,000 miles of pipelines of natural gas, oil, petroleum products and carbon dioxide. It also runs gasoline terminals and distributes natural gas to more than 1.1 million customers. The investors group is led by Richard D. Kinder, who founded the company after leaving Enron in 1996; he already owns 20 percent of its stock. Mr. Kinder said he wanted to take the company private.

Among all energy-services companies, pipeline operators are particularly attractive because they generate predictable cash flows and are less exposed to unexpected declines in oil or gas prices.

FRENZY, PART 2 -- The day after investors offered to buy Kinder Morgan, an electrical power company in Georgia started an unsolicited takeover of its own, offering $7.8 billion for a generator based in New Jersey.

The target company, NRG Energy, rejected the hostile offer from the Mirant Corporation, based in Atlanta, as it had turned aside Mirant's earlier proposal for a friendly merger. Combining the companies would create the country's largest independent power company, with plants mainly in California, Texas, the Middle Atlantic states and the Northeast.

Mirant's offer follows a string of other utility mergers as companies have been teaming up to offset climbing costs for coal, natural gas and other fuels, and to take advantage of rising electricity prices.

While NRG dismissed Mirant's offer as inadequate, it did not rule out considering higher offers from Mirant or others.

MOST POPULAR -- Following are the most-popular business news articles on nytimes.com from May 27 through June 2:

1. Where's the Petite Department? Going the Way of the Petticoat
2. Timing the Electronics Market for the Best Deal on a New PC
3. 2 Industry Leaders Bet on Coal but Split on Cleaner Approach
4. PC's That Are a Lot Smaller Than a Breadbox
5. Big Bonuses Still Flow, Even if Bosses Miss Goals

Links are at nytimes.com/business.

Photo: Shoppers flocked to malls in May, like Easton Town Center in Columbus, Ohio. Many retailers posted sales gains, but domestic automakers recorded losses. (Photo by Kiichiro Sato/Associated Press)